Why U.S. Home Sales Are Both Up and Down

From the Wall Street Journal:

We can’t blame you for being confused about housing. Tuesday, the market cheered a surge in existing-home sales. Then comes today’s news that new-home sales slid 11.3% in November, falling to the lowest level since April.

Up, down. Up, down. What gives?

Though the two reports both concern home sales in November, they aren’t really in synch and so aren’t comparable. The National Association of Realtors records existing-home sale data when the home closes, while the government records new-home deals when contracts are inked.

For home resales, there is typically a lag of a month to six weeks between the signing of contracts and the closing. So most of the November sales reported by the Realtors are based on decisions buyers made in September or October. At that point, lots of people were scrambling to buy homes in time to qualify for a tax credit that was due to expire Nov. 30. (It was later extended through April 2010.)

For the new-home sales, the decisions were made in November, when there was no such scramble to qualify for the tax credit.

Existing inventory includes foreclosures, which continue hitting the market and typically command a steep discount to new homes. Buyers, particularly first-timers, are rushing to take advantage of these falling prices. As Wednesday’s Journal points out, first-time buyers made up 51% of purchases in November, according to the Realtors. Sales of foreclosed and other “distressed” properties - which includes homes built during the housing boom - accounted for one-third of the purchases.

Median prices are another issue: The price tag for existing homes came in at $172,600, while new homes registered $217,400.

Housing economists and analysts are eager to see how this plays out in the next few months. It is likely that the tax credit pulled forward demand for both new and existing housing, but no one knows by how much.

“The spring selling season would be critical to determining whether a possible double-dip is at hand, or whether housing’s recovery will regain steam,” writes Carl Reichardt, an analyst with Wells Fargo.

Some experts seem more optimistic than others, particularly when it comes to new homes.

“The new home sales figures didn’t bring any smiles to Wall Street’s face this holiday season,” writes Mike Larson, real estate and interest rate analyst at Weiss Research “Still, I’m not all that surprised. Some giveback was to be expected given the feared expiration of the tax credit and the pull-forward of some demand Now that the credit has been extended and expanded, and the economy has improved a bit more, I suspect sales going forward will find support.”

But Mr. Reichardt, who covers the home builders, remains concerned.

“We are entering poor-weather winter months, when it is more difficult to construct homes in a substantial part of the country, with builders also low on spec units,” he writes. “While [today's] dataset is volatile and could be revised, the poor weather thus far in December also leads us to conclude sales rates could continue to show weakness when reported in late January.”

He also points out that numbers for August, September, and October were revised down by 2%, 3%, and 7%, respectively. Will that happen again? Stay tuned.

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